The View | Asia’s housing market pain: why Japan could be next

For most of this year, signs of resilience in many housing markets in the Asia-Pacific region were increasingly apparent. Despite the dramatic rise in interest rates and mounting economic and geopolitical headwinds, home values recovered faster than anticipated.

Australia led the way, as prices in capital cities began to rise as early as February following a 7.5 per cent decline since April 2022, just before the Reserve Bank of Australia launched its aggressive monetary tightening campaign. Home values hit a fresh all-time high last month, according to data from CoreLogic.

Even in New Zealand and South Korea – two markets that have suffered most because of a rapid surge in prices after the pandemic erupted – home values have begun rising again. This recovery in prices is part of a global trend.

According to an index compiled by Knight Frank, while prices fell in annualised terms in the second quarter of this year in nearly 40 per cent of 56 markets surveyed, only around a third of the countries witnessed declines on a quarterly basis, pointing to an improvement in market conditions this year. The combination of tight supply, strong labour markets and effective macroprudential regulations helped avert a crash.

Yet, there are other signs that suggest the housing market pain in Asia is by no means over. The most extreme example is China, where the residential property market never recovered following a policy-induced price correction that began in the second half of 2021.

While other major housing markets are plagued by chronic undersupply, China is contending with years of oversupply. The correction, moreover, is not just cyclical but also structural because of shrinking demand stemming from an ageing population, a falling birth rate and, crucially, the government’s efforts to shift away from investment towards consumption.